“We expressed to Treasury that we are concerned that they are building a system to suit the large APRA funds even though 75 per cent of those who will be impacted by the new super tax proposal will be SMSF members,” Mr Burgess said.
“We wanted to emphasise that it is important that we have a system that is equitable for all funds and asked Treasury to consider using actual earnings to calculate the tax rather than the method that is currently proposed.”
Mr Burgess said in its consultation paper, Treasury had mentioned this was an option but it had been discounted early because of the difficulties Treasury saw for APRA funds in reporting actual earnings attributable to members.
“Treasury said that it would require a significant amount of reporting and system changes,” Mr Burgess said.
“The point we were making was the SMSF sector can do this and although it may require some changes to the reporting system, we also understand that some APRA funds can already report actual earnings and we wanted the opportunity to propose an opt-in situation.
“Our proposal was, that if funds can’t report on actual earnings then they could report on the deeming rate.”
Mr Burgess said although there was no commitment either way from Treasury, it did say it would take onboard the Association’s concerns and proposal.
“We would like to think it hasn’t been signed off and that there is still time for the Government to reconsider the approach,” he said.
“Treasury is keen for a simple approach which is why they have landed where they have.
“But what’s coming out every day is [the industry] is hearing about the amounts that will have to be excluded from the TSB and that list is growing. It’s not as Treasury has assumed.”
Although Mr Burgess said he did not expect Treasury to change its mind on the $3 million threshold, he hopes it may reconsider the way in which earnings are calculated.
“I don’t believe Treasury realised there would be so many things that had to be discounted from the TSB calculation,” he said.
“What we have found is that it is very unfair they are putting a model forward for SMSF to pay tax on unrealised gains simply because large funds will find it difficult to report.
“[Treasury] was trying to avoid APRA funds having to make major changes to their system and their reporting, but TSB is already reported and although I can see the complexities for APRA funds to report, our alternative is a simpler approach.
“All we ask is that Treasury at least give funds the option – let those that can report actual earnings do it and if not apply the deemed earning rate.”
Many APRA funds have self-directed investment portfolios where the member can nominate the actual investments they want to hold. The Funds calculate individual earnings and balances on these accounts. So the proposed change may not need much by way of system changes.
The total super balance methodology, proposed for its simplicity, is not simple at all when all the unintended consequences are catered for. Further, it is not equitable. The tax on taxable earnings method basically removes all the unintended consequences so is both simpler and equitable. Increasing the cap to $5m, thus removing 69k of the 80k affected members, would significantly reduce the administrative burden to all, including the ATO. Treasury should perform a cost benefit analysis on this scenario rather than merely discounting it.
Sounds like a sensible middle ground Peter. Let’s hope the principles of sound policy development override political imperatives.
Given that APRA regulated funds find it difficult to calculate actual earnings per individual account, why would anyone trust them with their money?
I think to work out actual earnings (which includes unrealised gains) is easy enough as I am seeing them on statements but to then go the next step and work out taxable income for each individual account would require significant rehaul. Even if you increased the threshold to $5 million, the fact that one needs to have a framework to capture affected people starts to bring costs and complexity to implementing the scheme